KeyStone’s Your Stock Our Take is Caldwell Partners International Inc. (CWL:TSX), Our Star is Unisync Corp. (UNI:TSX-V) & Our Dog is Invictus MD Strategies Corp. (GENE:TSX-V).
This week in our Your Stock, Our Take segment we look at Caldwell Partners International Inc. (CWL:TSX), is a traditional executive search firm specializing in recruiting executives for full-time and advisory roles on behalf of its clients. The company posted a strong breakout quarter this week and the stock which trades in the range of $1.15 pays a 6.7% dividend. Is it a BUY, SELL, or HOLD – we’ll tell you. Our Star of the week is Unisync Corp. (UNI:TSX-V), specializes in the production and distribution of highly technical protective garments, military operational clothing and accessories for a broad spectrum of Federal, Provincial and Municipal government departments and agencies. The company also provides customer-focused provider of corporate apparel for Air Canada, Shoppers Drug Mart, TELUS & more. The stock is up 20% in the past 3-weeks – what is driving the surge. Finally, our Dog of the week is Invictus MD Strategies Corp. (GENE:TSX-V) – owns and operates two cannabis production facilities, both with sales licenses, under the ACMPR in Canada, with the vision of producing a variety of high quality and low-cost cannabis products to the global market, as regulations permit. The company even lists Gene Simmons of the legendary Rock Band KISS as its Chief Evangelist Officer. The stock has fallen 20% over the past 3-weeks. Is it a Dog or an opportunity?
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Now, let’s dig into the show.
I welcome back my co-host, KeyStone’s VP and Senior Analyst, Aaron Dunn.
Your Stock, Our Take
Caldwell is a company you have covered in the past if I am not mistaken. The stock put out what appeared to be great results this week. Your thoughts?
- Terrence, Halifax, Nova Scotia.
Caldwell Partners International Inc. (CWL:TSX)
Current Price: $1.20
Market Cap: $24.5 million
What does the company do?
The Caldwell Partners International Inc is an executive search firm specializing in recruiting executives for full-time and advisory roles on behalf of its clients. Caldwell concentrates activities on locating executives to fill senior executive employment and executive advisory solutions.
Key Points:
- July 10th: Very strong quarterly financial statements were released, leading to a 9% jump in stock price overnight from $1.10 to $1.20
Recent Quarterly Financials:
- Revenue for the first quarter ended March 31, 2018 was $18.0 million, an increase of 24.1% over the prior year period.
- Net Income was $987 thousand, up 340.6% from the prior year period.
- Adjusted EBITDA was $1.71 million, compared to $1.10 million in the same quarter of 2017.
John Wallace, CEO
“This was an outstanding quarter, bringing the firm to a new high-water mark for revenue… Our search teams throughout our geographic regions drove strong growth in both search volume and the value of assignments, despite pressure from foreign currency rates… There is a lot of positive momentum inside our firm right now – our updated brand has been very well received since its debut, and we are excited about the recent expansion of our Agile Talent offering with the launch of our Value Creation Advisory Solution.”
Our Take:
The Q3 results were very strong and set a new high water mark for the company in terms of revenue. The third quarter also represented the largest level of new bookings and revenue in a single quarter in the company’s history, so the business is positioned well for the fourth quarter.
Couple of notes:
Business looks incredibly cash rich with cash and cash equivalents of over $16 million – almost 2/3rds of its market cap in cash. But we have to dial that back. The company holds compensation payable or owed of $15.8 million and estimates unencumbered cash or a figure closer to working capital at just $8.6 million or roughly half the cash value – still encouraging but not nearly as high.
Trailing PE is in the range 10 is attractive based on the last quarter and if the growth continues it certainly looks undervalued.
This has been our issue with the company – it has historically produced one, two or three solid quarters, only to be followed by a weak one or two – in other words, the company is lumpy an inconsistent.
On the bright side, there is a strong dividend which yields roughly 6.7% – not guaranteed, but is stable at present.
The company should have a strong fourth quarter this year and sets up as a decent trade – the comments from management were positive, but we have no visibility beyond Q4. The stock is likely undervalued and is an option as a trade for Q4, but the inconsistency, lack of liquidity and long-term earnings growth keeps us on the sidelines.
Valuations:
- Over $16 million in net cash – but:
- Essentially no debt
- P/E: 10.34x
- P/EBITDA: 5.66x
Weekly Star
Unisync Corp. (UNI:TSX-V)
Current Price: $4.05
Market Cap: $54 million
Star Performance:
The stock was trading for $3.38 on June 28th. Since then, in the last two weeks, it has risen 19.8%.
What does the company do?
Unisync operates through two business segments: Unisync Group Limited (“UGL”) of Mississauga, Ontario and Peerless Garments LP (“Peerless”) of Winnipeg, Manitoba. Peerless specializes in the production and distribution of highly technical protective garments, military operational clothing and accessories for a broad spectrum of Federal, Provincial and Municipal government departments and agencies. UGL is a leading customer-focused provider of corporate apparel, serving a list of leading Canadian iconic brands such as Air Canada, Home Hardware, Purolator, Shoppers Drug Mart and TELUS.
What is driving the stock?
On June 28th, coinciding with the beginning of the share price upsurge, Unisync’s wholly owned subsidiary Unisync Group Limited had received the Top Award within the category of “Best Design for Corporate Clothing” for the recently launched entire Image Apparel Program for 25,000+ domestic and international employees at Air Canada.
Financial Results
Quarter ended March 31st, 2018 compared to quarter ended March 31st, 2017
- Revenue was $36.4 million compared to $13.6 million, up 167.1%.
- Net income was $6.4 million compared to a loss of $0.3 million
- On a diluted per share basis, $0.48 compared to a loss of $0.02
- Adjusted EBITDA of $9.5 million compared to $0.2 million, up 4676.3%
- On a diluted per-share basis, $0.70 compared to $0.01, up 6900%.
“The improvement in net income reflects a return to more normal
gross profit margins following a significant and sustained period of reduced margins caused by the precipitous drop in the value of the Canadian dollar and its consequent effect on our cost of goods purchased offshore. The proven effect of economies of scale associated with greater absorption of fixed costs with the increase in revenue also played a large role in the improved profitability”
Conclusion:
Earnings: $0.55
7.36x
EBITDA: $0.95
4.26x
Appears to be very affordable considering the company’s earnings. This, combined with the company’s excellent growth numbers, make Unisyct Corp. this week’s Star of the Week!
Weekly Dog
Invictus MD Strategies Corp. (GENE:TSX-V)
Current Price: $1.42
Market Cap: $135 million
Dog Performance:
Stock has declined roughly 20% over the past 3-weeks.
What does the company do?
Invictus owns and operates two cannabis production facilities, both with sales licenses, under the ACMPR in Canada, with the vision of producing a variety of high quality and low-cost cannabis products to the global market, as regulations permit. The company’s 50% owned AB Laboratories Inc. located in Hamilton, Ontario. It owns 100 acres of land near Hamilton, Ontario, to be used for future cannabis cultivation. Via a recent proposed applicant acquisition the company expects to have approximately 262,000 and 846,000 square feet of cannabis production capacity by the end of 2018 and 2019, respectively.
Most importantly from a culture perspective – Gene Simmons of the Rock Band Kiss, conveys the vision of Invictus as the Chief Evangelist Officer of Invictus – sounds a little cheesy, but it is probably a smart hire in this business.
What is driving the stock lower?
- On June 22nd, the company released financial results that showed top line revenue growth, but continued losses.
2018 most recent quarter compared to 2017 equivalent quarter
- Revenue was $1.3 million compared to $0.5 million, up 163.9%.
- Net loss was $3.0 million compared to $8.9 million
- On a diluted per share basis net loss of $0.03 compared to $0.19
Conclusion:
The general weakness in the company over the past 3-weeks and 3-months, corresponds largely to general weakness in the Cannabis segment over the past month. The continued losses could spook some investors, but for these growers, the current numbers are inconsequential until full scale recreational sales move forward.
The company currently has significant losses and does not fit the profile of a company we would consider a recommendation. While the net loss for this quarter is significantly less than the net loss from the same quarter last year, the overall loss in the previous 12 months and the fact the market cap stands at $140 million for a business currently with quarterly sales in the range of $1 million – is too great to ignore and the losses in the stock over the past 3-weeks, make Invictus our Dog of the Week!
Good news – this week:
- Announced it has signed a Memorandum of Understanding (MOU) with the BC Liquor Distribution Branch (LDB) to supply the province with a selection of premium cannabis products for the upcoming recreational marketplace.
The ties to Gene Simmons are probably a positive given the sale of the various Cannabis products will likely end up being a marketing exercise as the amount of growers being licenced will likely squeeze growing profits making low cost producers the profitable ones – essentially commoditizing basic Cannabis crops.
Branding will likely be key.
We have a full report on this industry upcoming.
